Will KB Financial Benefit from Risk Management and Reclaim 'Leading Finance' by Acquiring Prudential? (Comprehensive)

KB Financial, the Only One to Successfully Manage Risk
Market Cap Surpasses Shinhan Financial... Leadership Secured with Prudential Acquisition
Competition with Shinhan Financial, Whose Chairman Cho Yong-byeong Is Virtually Reconfirmed, Expected to Intensify

[Asia Economy Reporter Kangwook Cho] 'KB Financial Group vs Shinhan Financial Group'

KB Financial is continuing its swift moves to reclaim the title of 'leading financial group' that was taken by Shinhan Financial. Recently, while the financial sector has been struggling with various private equity fund scandals such as the Derivative Linked Fund (DLF) and Lime Asset Management incidents, KB Financial is the only one that has successfully avoided both crises, demonstrating effective risk management. Its market capitalization has also surpassed Shinhan Financial, ranking first in the financial industry. If it succeeds in acquiring Prudential Life Insurance, it is expected to secure a leading position in the competition among financial groups.

According to financial information provider FnGuide on the 22nd, last year Shinhan Financial recorded an annual net profit of 3.445 trillion KRW, narrowly ahead of KB Financial's 3.307 trillion KRW net profit. Following them were Hana Financial Group with an estimated 2.432 trillion KRW and Woori Financial Group with 1.959 trillion KRW. It is expected that Shinhan Financial will smoothly maintain its position as the leading group.

However, the situation this year is different. KB Financial is seeking to reclaim the leading financial group position by expanding its size to compete against Shinhan Financial. Recently, Woori Financial, which was expected to be a competitor in the Prudential Life Insurance acquisition, withdrew, leaving KB Financial as the only financial holding company to officially enter the race.

As of the end of September last year, Prudential Life Insurance had total assets of 20.8081 trillion KRW and a solvency margin ratio (RBC) of 515.04%, ranking first in the industry. Its cumulative net income for the third quarter was 146.5 billion KRW. During the same period, the total assets of KB Financial and Shinhan Financial Group on a consolidated basis were approximately 545 trillion KRW and 506 trillion KRW, respectively. If KB Financial acquires Prudential Life Insurance, its assets will be about 530 trillion KRW, close to Shinhan Financial, and its operating profit will even surpass it. Combining KB Life Insurance, ranked 13th with about 19.3 trillion KRW in assets, and Prudential Life Insurance, ranked 11th, would result in approximately 39.5 trillion KRW in assets, making it the fifth largest in the industry. This is why it is anticipated that KB Financial's acquisition will be the starting point for reclaiming the leading financial group position. Previously, in 2017, Shinhan Financial acquired Orange Life (formerly ING Life), which had assets of about 33.74 trillion KRW and operating profit of about 260 billion KRW, taking the leading financial group position from KB Financial.

Additionally, KB Financial is the only one to have avoided the DLF loss incident and the Lime Asset Management fund redemption suspension, which have thrown the financial sector into panic since last year. KB Kookmin Bank reportedly fully redeemed about 75 billion KRW of Lime Asset Management funds in July last year. However, except for Kookmin Bank, Shinhan, Hana, and Woori Banks are all embroiled in the Lime incident.

Kookmin Bank also avoided the DLF, which caused large principal losses at Woori Bank and Hana Bank. The Kookmin Bank Wealth Management (WM) Product Committee rejected the sale of DLFs due to high risk, which turned out to be a 'masterstroke.' Due to the DLF incident, the CEOs of Woori Financial and Hana Financial are currently awaiting disciplinary decisions from the Financial Supervisory Service's sanctions committee. The head of Shinhan Financial is also not free from legal risks due to allegations of hiring irregularities.

The market capitalization ranking has already been reversed. Last year, Shinhan Financial seemed to have solidified its position as the number one in the financial sector by widening the gap, but towards the end of the year, KB Financial began share buybacks citing shareholder returns, changing the situation and ultimately reclaiming the top spot in market capitalization. As of the 21st, KB Financial's market capitalization was 19.6885 trillion KRW, ranking 13th on the KOSPI, while Shinhan Financial was just below at 19.6319 trillion KRW, ranked 14th.

Researcher Hyejin Park of Daishin Securities said, "As of the third quarter last year, KB Financial holds the highest capital ratio (15.3%) among domestic financial holding companies," and added, "It is the only financial holding company capable of simultaneously pursuing mergers and acquisitions (M&A) and shareholder return policies."

Cho Yong-byeong, Chairman of Shinhan Financial Group, who was indicted on charges of involvement in fraudulent hiring of new employees, is answering questions from the press as he leaves the court after the first trial sentencing hearing held on the 22nd at the Seoul Eastern District Court in Songpa-gu, Seoul. Photo by Kang Jin-hyeong aymsdream@

Meanwhile, Shinhan Financial is expected to gain momentum in its leap toward becoming a 'first-class Shinhan' as Chairman Cho Yong-byeong was effectively confirmed for reappointment with a suspended sentence in the first trial verdict on hiring irregularities. Earlier, Shinhan Financial announced on the 21st that it decided to dispose of 13,882,062 shares of its treasury stock through off-market transactions. The disposal price per share is 43,336 KRW, and the expected disposal amount is approximately 601.593 billion KRW. Shinhan Financial faces the challenge of preventing a decline in stock value to avoid harm to shareholders on both sides as it seeks to fully incorporate Orange Life as a wholly owned subsidiary.